TaxTMI 
TaxTMI 
2008 (2) TMI 521
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....per cent treating the same as 'plant' as against the rate of depreciation at 10 per cent applicable to 'building' as the term 'building' is defined to include well as per Note 1 below Appendix to r. 5 of the IT Rules. (4) allowing depreciation @ 25 per cent on the capitalized value of Rs. 1,92,77,510 of gas separator and flood light mast treating the same as 'plant and machinery' as against 10 per cent allowed by the AO treating the same as 'building'. (5) allowing deduction under s. 80-IB(9) of the IT Act amounting to Rs. 3,24,95,075. (6) considering well Nos. 6 and 7 as separate undertaking and allowing deduction under s. 80-IB(9) of the IT Act. (7) in appreciating the fact that s. 80-IB(9) of the IT Act applies to an assessee who is engaged in commercial production or refining of mineral oil. whereas the assessee produces natural gas and the word 'mineral oil' does not include 'natural gas' for the purpose of s. 80-IB(9) of the IT Act." 2. In the appeal by the assessee (ITA No. 789/Ahd/2005) the grounds raised are: "The learned CIT(A)-IV, Baroda [hereinafter referred to as 'the CIT(A)'] erred on facts and in law in upholding the assessment order dt. 3rd March, ....
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.... claimed under s. 42 of the Act and enhancement of income through additional disallowance made The CIT(A) has, based on the facts of the case and in law, erred in treating the appellant as not eligible to claim any deduction under s. 42 of the Act amounting to Rs. 27,40,33,303 on the basis that the production sharing contracts do not provide for the deductibility of such expenses. The CIT(A) further, erred on the facts and in law, in enhancing the income of the appellant by Rs. 5,62,96,527 by holding to be disallowable, the deduction given by the AO under s. 42 of the Act in computing the appellant's income, on the same basis. The appellant prays that the AO be directed to allow deduction under s. 42 of the Act in respect of the expenditure incurred by the appellant amounting to Rs. 27,40,33,303 in connection with the drilling and exploration activities carried on by it. Without prejudice grounds 4.2 Error in allowing depreciation on expenditure incurred in drilling of wells Without prejudice to 4.1 above, the CIT(A) has, based on the facts of the case and in law, while allowing depreciation on the expenditure incurred on construction of wells, erred in not totall....
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....for not levying interest under s. 234C in absence of express direction giving in the assessment order." 3. As regards ground No. 1 in Revenue's appeal, the facts are that the assessee paid demurrage charges of Rs. 3,56,051 during the year for late taking of delivery of the drilling equipment imported and claimed the same as deductible revenue expenditure. The AO disallowed the claim of the assessee by holding that the charges as paid were for infraction of law by not taking the delivery of certain goods within the stipulated time laid down as per rule. The CIT(A) allowed the claim by relying upon the decision of Allahabad High Court in the case of Nanhoomal Jyoti Prasad vs. CIT (1980) 123 ITR 269 (All) wherein it is held that the demurrage is a charge by way of compensation and includes amount chargeable for storage and safe custody of the goods by port authorities and it is an additional amount charged from the person for delayed clearance. It is not a fine paid to the port authorities for any criminal act but is a compensation for the use of port facilities beyond the free period allowed under the rules. 4. After hearing the parties we do not find reason to disagree with th....
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.... iii). Welfare expenses Rs. 11,26,150; and iv) Miscellaneous expenses Rs. 30,51,823. The assessee during the course of assessment proceedings did not produce all the vouchers relating to these expenses on travelling, conveyance, welfare, miscellaneous and out of pocket expenses. The ground stated was that they were large in quantity and had been kept in so many files. Moreover, the voucher relating to these heads were found to be kept in a very disorderly manner and it was extremely difficult to find out a particular voucher for a particular expenditure and the purpose for which expenditure was incurred. Some of the journeys were not linked with the business purpose. The assessee could not satisfactorily explain as to what was the purpose of travelling. In absence of these details, the entire amount on out of pocket expenses/travelling and conveyance expenses, welfare and miscellaneous expenses were here held to be not for business purposes. The AO accordingly disallowed a sum of Rs. 10,00,000. 6. The CIT(A) reduced the disallowance to Rs. 5,00,000. He accepted the assessee contention as regards out of pocket expenses paid to auditors because as per the terms of agreement, norma....
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....enditure is on assessee; that it is settled position of law that where an assessee claims a deduction, the onus on him to bring all material facts on record to substantiate the claim in view of decisions of Sohan Pathak & Sons vs. CIT (1951) 19 ITR 199 (All), Lakshmiratan Cotton Mills Co. Ltd. vs. CIT (1969) 73 ITR 634 (SC), L.H. Sugar Factory & Oil Mills (P) Ltd. vs. CIT (1980) 19 CTR (SC) 185 : (1980) 125 ITR 293 (SC), CIT vs. Chandravilas Hotel (1986) 56 CTR (Guj) 182 : (1987) 164 ITR 102 (Guj), CIT vs. Southern Sea Foods Ltd. (1995) 129 CTR (Mad) 79 : (1995) 215 1TR 176 (Mad) and Assam Pesticides & Agro Chemicals vs. CIT (1998) 145 CTR (Gau) 213 (1997) 227 ITR 846 (Gau). According to him the AO was reasonable enough to disallow only Rs. 10,00,000 out of the expenses of about Rs. 234 lakhs which is about 4 per cent and deserve to be sustained. 8. The learned counsel on the other hand submitted that the AO has presumed that all expenses claimed cannot be said to be laid out for business purpose on the allegation that the relevant vouchers could not be produced; that all the aforesaid expenses have been incurred wholly and exclusively for the purposes of business of the assesse....
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....t at 100 per cent; alternatively to restrict to 25 per cent. Both the above issues being common and inter-connected, are being discussed hereunder together. 11. We shall first take up the issue of deduction under s. 42, raised in the appeal of the assessee that being the principle issue. The question of allowing depreciation and that too at what rate would arise only when assessee's claim under s. 42 is found to be not maintainable. 12. The assessee claimed for deduction of a sum of Rs. 27,40,33,303 under s. 42 of the IT Act, 1961 comprising of the following amounts-(i) Rs. 25,58,865 being additions to fixed assets; (ii) Rs. 5,41,95,406 being drilling costs and exploratory delineation; and (iii) Rs. 21,72,79,032 being additions to producing properties. 13. As regards first item, the details of claim of expenditure being additions to fixed assets of Rs. 25,58,865 are: ----------------------------------------------------------------------- Description Hazira Bhandut Cambay Baroda Surat Baroda Total ----------------------------------------------------------------------- Office equipment and furnishing&....
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....s used by expatriate general manager. As the assessee had hired a drilling rig for drilling and exploration purposes the guest house equipment kept in Baroda and Surat would not have been used in connection with the drilling and exploratory activities; that the assessee has incurred the amount of Rs. 5,52,247 on purchase of computers kept at Hazira and Baroda. These computers were used for the office work and also in connection with distribution and sale of crude oil and natural gas. The computers were not connected in any way with drilling and exploration activities; that Rs. 2,49,473 on vehicles used for Hazira and Baroda office the AO observed that the drilling operations activities were not being carried out by the assessee itself, therefore, it is not feasible to believe that the vehicles would have been used in connection with drilling and exploration activities; that Rs. 1,76,550 on purchase of generator kept at Baroda cannot be used in connection with drilling operations which are being carried out at a far distant place. Therefore, these sums were not deductible under s. 42 of the IT Act, 1961 by the AO. He however allowed depreciation at the applicable rates on these item....
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....bsp; 5,68,93,238 properties dry hole ----------------------------------------------------------------------- Land 4,99,950 2,39,760 7,39,710 ----------------------------------------------------------------------- Building 9,48,890 1,88,583 11,37,472 ----------------------------------------------------------------------- 13.6 A perusal of the details cited above shows that Rs. 14,07,33,983 has been spent on wells cost. The well cost is nothing but production cost which is incurred to protect, cover and put a structure around the space drilled from which mineral oil or gas is obtained. The wells constructed cannot be held to....
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....is allowed. 13.10 The assessee has incurred expenditure of Rs. 7,39,710 on land. It has not been established that land has got any connection with drilling and exploration activities. Therefore, the amount of Rs. 7,39,710 expended on land is disallowed. The land does not qualify for depreciation under s. 32 of the IT Act, 1961. Therefore, no depreciation is allowed. 13.11 The assessee has incurred expenditure of Rs. 11,37,472 on building. It has not been established satisfactorily that the building has any connection with drilling or exploration activities. Therefore, the amount of Rs. 11,37,472 being expenditure incurred on building is held to be not allowable under s. 42 of the IT Act, 1961. The assessee will, however, be entitled to depreciation under s. 32 @ 10 per cent, which works out to Rs. 1,13,747. 14. As per s. 42(1)(a) expenditure incurred by way of infructuous or abortive exploration expenses in respect of any area surrendered prior to the beginning of the commercial production is allowable. The assessee had started commercial production some 7 to 8 years ago. Therefore, no deduction of Rs. 5,68,93,238 claimed on account of dry hole expenditure is held to be al....
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....n sharing contracts (PSC); the second basic condition is that only those allowances are allowed which are specified in the agreement and that these allowances should be in relation to various specific natures as mentioned in sub-cls. (a), (b) and (c). It means that these allowances should be specified in the agreement and there may be chances that various/different types of allowances have been specified in the agreement, which are in respect of drilling or exploration activities or services. 18. He observed that undisputedly no allowances have been specified in the PSC. As already mentioned, all the five contracts, which the assessee and M/s GSPCL jointly entered with the Government of India are having the same content and language and art. 15 in all deals with computation of profits and gains for the purpose of income-tax and it is named as "taxes, royalties, rentals, customs duties etc". Clause (3), which deals with computation of profits and gains for levy of income-tax is extracted by him as under: "15.3. The profits and gains of the a company consisting of petroleum operations shall, for the purpose of levy of income-tax under the IT Act, 1961 be computed on the basis o....
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.... is an incentive provision for the concerns engaged in extraction and production of mineral oil and accordingly, it should be interpreted liberally and that the Supreme Court has held that where the plain literal interpretation of statutory provision produces a manifestly unjust result, the Court, might modify the language so as to achieve the intention of legislature was also rejected by the CIT(A) by citing the decision of the Supreme Court in the case of Navopan India Ltd. vs. CCE & Customs 1994 (73) ELT 679 (SC) holding "exemption being in the nature of exception, it is to be construed strictly at the stage of determination whether the assessee falls within its terms or not and in case of doubt the benefit must go to the State. Once it is found applicable, full effect may be given." As regards rules of liberal interpretation he referred to the decision of the Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC) holding that "rules of interpretation would come into play only if there is any doubt with regard to the express language used in the provision. Where the words are unequivocal, there is no scope for importing the r....
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....o be allowed which are specified in the agreement entered into by the assessee with Central Government. In fact PSCs do not specify any allowance and accordingly, no deduction can be allowed under s. 42. In contrast he noted that in the later period, the assessee itself has entered into PSC providing the allowances allowed to be deducted under s. 42. It, according to him only proves that while entering into these contracts with the assessee and GSPCL, the Central Government at that time may not have thought it fit to provide special deduction under s. 42 of IT Act and in view of the same, the expenditure/allowances have not been specified in the PSCs signed in the years 1994 and 1995, which are relevant to the assessment year under consideration. The another difference noticed in the later contract (in which the expenditure has been specified) and the contracts under consideration is that these later contracts are entered into between Central Government and the assessee only, whereas, the contracts under consideration are tripartite contract between Central Government, the assessee and M/s GSPCL. Accordingly, he held that in respect of present PSCs the assessee is not entitled to d....
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....e house, though for other agreements no information is available; and that the manner of expenditure is provided in the agreements and he referred to in this connection arts. 15, 24, Annex. 'c'. The CIT(A) relied upon 2003-04 agreements providing specifically which is nothing but making explicit what is implicit. He then referred to letter dt. 11th April, 2007 and also to earlier letter dt. 17th June, 2005 and submitted that it was nothing, but a technical objection not valid in law. 24. The assessee also submits that the aforesaid assets were used in the assessee's project office; site offices at Hazira; Bhandut, Sabarmati, Matar and Cambay and the guest house at Surat; that the core activities of the assessee are drilling and exploration and the project office provides overall support to these core activities; that the personnel working at the project office are operation managers, technical personnel, drilling supervisors, geologists, finance and accounts staff, commercial and administration staff who are carrying out the activities of-drilling plans, ascertaining requirement of equipment, requirement of material and services relating to drilling, and locating suppliers and h....
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.... required to explore (or discover) as well as extract such oil and gas. The drilling can be of two types: (i) Exploratory drilling for the purpose of searching for undiscovered oil and gas accumulations on any geological prospect; and (ii) Development drilling referring to drilling or deepening, completion or recompletion of a well within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. In simplified terms the drilling process involves turning a string of pipe with a drill bit connected to the end, using a motor, either at the surface or downhole. The drill bit has special "teeth" to help it crush or break up the rock it encounters to make a hole in the ground. The 9 steps involved in drilling were then explained. It is submitted that each of the aforesaid steps is an integral part of the drilling process. Simplistically, drilling means boring or making a hole. It is a process of turning a string of pipe with a "drill bit" connected to the end, into the ground or the seabed. During the drilling process, "drilling fluid" or "drilling mud" is constantly circulated down the well bore. Drilling mud serves several purposes. It ra....
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....nce Note deals with exploration costs as: "principal types of exploration costs cover all direct and allocated indirect expenditure which include depreciation and applicable operating costs of related support equipment and facilities and other costs of exploration activities." In view of nature of drilling and exploration activities, it is claimed that the expenditure on drilling tangibles and drilling services are clearly incurred towards drilling and exploration activities and is allowable as under s. 42 of the Act; that the deductibility of expenses for tax purposes should be determined only with reference to tax principles and not accounting principles in view of decisions of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) and Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC). 27. As regards the expenditure incurred on gas separator and flood light mast, it is submitted that the laying of flow lines and constructing production facilities like separators, heater, teeters, tanks etc. is a logical conclusion to the drilling process. Further, the expenditure incurred on installing the flood li....
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....to an activity prior to beginning of commercial production and sub-cl. (b) applies to the situation, after the beginning of commercial production. Sub-cl. (c) applies to allowance in relation to depreciation on mineral oil in the year where production has begun and in succeeding year. The assessee has already started commercial production, its case therefore falls in sub-cl. (b) of s. 42(1). To summarise, the following conditions should be satisfied for claiming deduction under s. 42(1) of the Act-(i) there should be an agreement of the assessee with Central Government; (ii) that the agreement should be laid on the table of each house of the Parliament; (iii) that the allowances sought to be allowed are those specified in the agreement; (iv) that such specified allowances should be the expenditure incurred in respect of drilling or exploration activities or services or in respect of physical assets used in that connection; and (v) that such allowances is to be computed and allowed in the manner specified in the agreement. 30. The assessee has no doubt entered into agreement (PSC) with the Central Government in respect of various fields, but except one the other agreements are no....
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.... Government of India and assessee and GSPCL and was laid/to be laid on the table of both the houses of Parliament. It being a legal document, no word or phrase can be added. It has to read as it is. Accordingly, the CIT(A) is right in not accepting submission of the assessee that "as reduced by allowable deduction" should be read as "as reduced by allowable deduction under the Act including s. 42 of the Act". Even otherwise s. 42 contains a specific mention of the phrase "such allowances as specified in the agreement" and that in absence of any allowances being specified in the agreement, no additional allowance can be deducted by virtue of s. 42, over and above the normal allowance allowable under other section of the Act. It is not only that these allowances should be specified in the agreement, but even the computation of such allowances has to be made in the manner specified in the agreement. The same is quite clear from the phrase used below sub-cl. (c) of s. 42(1) i.e., "and such allowances shall be computed and made in the manner specified in the agreement". Nowhere in the PSC agreements, the computation and manner of such allowances, is stated or specified. Accordingly, no ....
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....ding building. This is quite separate from the land allotted by the Government for the purpose of drilling the oil/gas well. Accordingly, this land and building has no exploratory drilling activity. 37. The contention that s. 42 is an incentive provision and, therefore, should be interpreted liberally is to be viewed in the light of the decision of the Supreme Court in the case of Pandian Chemicals Ltd. wherein it is held that the rule of liberal interpretation comes into play only if there were any doubts with regard to the express language used in the provision and where the words are unequivocal, there is no scope for importing the rule of liberal or other interpretation of an incentive provision. The Supreme Court in Petron Engineering Construction (P) Ltd. & Anr. again held that liberal conception cannot be made by doing violence to the plain reading of the provision of the Act. It reaffirmed that liberal construction can be resorted to only when it is possible without impairing the legislative requirement and the spirit of the provision. The language in the statute has to be read plainly and normally. The words used in the provision may be read from the context in which th....
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....he assessee is not entitled to any deduction under s. 42. 40. As before the CIT(A), the assessee before us also raised a contention based on discrimination on the basis of Canada tax treaty that the assessee cannot be subjected to a more burdensome basis of taxation, since it would amount to discrimination, which is not permissible under the provisions of art. 24 of the Indo-Canada tax treaty. In our opinion the CIT(A) rightly rejected its contention by observing that there is no difference in the provisions of IT Act, more particularly, s. 42 for Indian company and Canadian company. The same provisions of IT Act, 1961 are being applied to the assessee (a Canadian company), which are being applied to M/s GSPCL (Indian company). We therefore endorse his finding on the issue and hold that this argument of the assessee has no basis and is in fact misplaced. 41. The reliance on the case of M/s GSPCL is also of no avail in absence of detailed discussion therein. The CIT(A) in that case has discussed the allowability of specific expenditure with reference to the fact, whether same can be considered as drilling and exploration expenses or not and is thus covered under cl. (b) of s. ....
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....nt but also those which are enumerated therein. The assessee treated it as a plant and claimed depreciation @ 100 per cent on the cost on drilling the wells as per Entry III (3)(ix)(b) of the Appendix I of the IT Rules, 1962. It claimed that it would have been impossible for it to carry on its mineral oil business without the wells and accordingly the wells form the core of its "plant". It, being a tool in the assessee's business, is a "plant" as distinct from "building" which only refers to the premises or the setting where the business of the assessee is carried on. The decision of the Rajasthan High Court in CIT vs. R.G. Ispat Ltd. (1995) 124 CTR (Raj) 19 : (1994) 210 ITR 1018 (Raj) is referred to in support of its claim. 46. The assessee also relied upon the decision of Supreme Court in the case of Scientific Engineering House (P) Ltd. vs. CIT (1985) 49 CTR (SC) 386 : (1986) 157 ITR 86 (SC) which has laid down and formulated certain tests for determining, whether an asset, qualifies as 'plant'. Applying the functional test laid down by the Supreme Court, it is submitted that in the oil and gas business, the well is a producing apparatus with which the business is carried on ....
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....ned, the joint of drill pipe is added by a process known as mouse hole connection; that when the drill bit becomes worn out or damaged, entire drill pipe was to be removed by the process known as "tripping out" that afterwards casing of stainless steel was set for the completion of the well and tubing is lowered (this is basically a steel pipe), the perforation is done in the casing and cement by setting off explosive charges so that formation fluid can flow from formation into the well bore; that thereafter, valves and fittings controlling the production at the well head are installed which process is known as "installing the christmas tree" and this makes clear that the oil well is certainty different from the ordinary water well and accordingly, oil well cannot be considered as building, which unlike the normal water well, if not used for any specific purpose, other than drawing the normal water for normal consumption, has been treated as building. He referred to CIT vs. Oil India Ltd., where oil well has been treated as plant. The decisions of Siemens India Ltd. vs. CIT; Scientific Engineering House (P) Ltd. vs. CIT; CIT vs. Hindustan Motors Ltd. are also referred to by the CIT....
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....ting them as building as per Note No. 1 below Appendix I of IT Rules, 1962. He submitted that when the well has been specifically included in the buildings, there is no need to refer to the interpretation of the meaning of the well and to be treated as plant. The CIT(A) has not examined whether the decisions given for well as plant, are for the asst. yr. 1988-89 onwards or prior to that. However, no Court has held that the well is other equipment eligible for 100 per cent deduction. Even if the well be treated as plant, depreciation @ 25 per cent only is to be allowed as the well as a plant cannot be other equipment, Courts say, if plant, it should be treated as plant and nothing else. Reference may also be made to Tribeni Tissues Ltd. vs. CIT (1991) 190 ITR 487 (Cal) and CIT vs. Kiran Crimpers (1997) 140 CTR (Guj) 418 : (1997) 225 ITR 84 (Guj). 51. The CIT-Departmental Representative also submitted that CIT(A) is wrong in allowing depreciation @ 25 per cent on gas separator and floodlight mast by treating them as plant and machinery as against 10 per cent allowed by AO treating them as building. He further submitted that the figures of depreciation is to be modified to Rs. 1,62....
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....In Webster's New International Dictionary a building is defined to mean "that which is built specifically: As now generally used, a fabric or edifice, framed or constructed, designed to stand more or less permanently and covering a space of land for use as a dwelling, storehouse, factory, shelter for beasts or some other useful purpose. Building in this sense does not include a mere wall, fence, monument, hoarding, or similar structure, though designed for permanent use where it stands not being a steamboat, ship or a vessel of navigation. The existence of a roof may not be always necessary for a structure to be regarded as building. Non-residential building may be without a roof. What is a building under a particular statute is always a question of degree, a question depending upon the facts of each case as held in Ghansiram Das vs. Devi Prasad AIR 1966 1988 SC. 55. The term plant, on the other hand, is defined under s. 43(3). Under this section again an inclusive definition, the "plant" includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of business or profession. It is an apparatus with which business is carried on. It is not a p....
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....article or object fixed or movable live or dead used by a businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business". 57. Applying these functional tests, a well may be the producing apparatus with which the business of oil and gas extraction business is carried on and hence could be a 'plant' within the meaning of s. 43(3) of the Act. This view is also supported by decisions where a well and a tube well have been held to be plant. These are - (i) CIT vs. Oil India Ltd. holding the oil well as a plant, it being an apparatus used by the assessee for the purpose of deriving income from crude oil after drilling the well; (ii) Siemens India Ltd. vs. CIT holding a tube well in connection with setting up of a electroplating plant shop, a plant for a concern engaged in the manufacture of equipment for the generation and distribution of electricity, x-ray equipment and other electrical equipment; (iii) CIT vs. Hindustan Motors Ltd. holding that tube well used by the assessee for drawing water to be used in production constituted a plant for an assess....
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.... force as the sections in the Act. The contention of the respondents that unless the Act itself is amended, the Rules would not cut down the meaning of the word "building" is without substance. The inclusive definition of "building" to include roads, etc., enlarges the scope of s. 32 and does not whittle down its effect. It is true that in CIT vs. Coromandel Fertilisers Ltd. (1985) 156 ITR 283 (AP), the High Court of Andhra Pradesh interpreted that "roads" fell within the meaning of "plant" and granted depreciation at the rates admissible to plant, CIT vs. Sandvik Asia Ltd. (1983) 33 CTR (Bom) 128 : (1983) 144 ITR 585 (Bom) took the opposite view and held them to be building. In view of the consistent view of the other High Courts and which, in our view, is the correct one, the view of the High Court, of Andhra Pradesh is not correct in law." 60. Would it, therefore, be permissible to give the well or a tube-well a meaning other than a building when the definition given in a statute says it is a building? It might be true that as per certain decisions a well or a tube-well is an apparatus and, therefore, a plant but these decisions are all before their inclusion in the definitio....
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....y its ordinary meaning. An interpretation clause is not meant to prevent the word receiving its ordinary, popular and natural sense whenever that would be properly applicable, but to enable the word as used in the Act, when there is nothing in the context or the subject matter to the contrary, to be applied to some thing to which it would not ordinarily be applicable. Bearing in mind these principles, the Court examines the scope of s. 2(xxiv), which speaks of "disposition" "conveyance", "assignment", "settlement", "delivery", "payment" or "other alienation of property". It held: "A reading of this section clearly goes to show that the words 'disposition' 'conveyance', 'assignment', 'settlement', 'delivery' and 'payment' are used as some of the modes of transfer of property. The dictionary gives various meanings for those words but those meanings do not help us. We have to understand the meaning of those words in the context in which they are used. Words in the section of a statute are not to be interpreted by having those words in one hand and the dictionary in the other. In spelling out the meaning of the words in a section, one must take into consideration the setting in whic....
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....Ahuja vs. CCT (2000) 164 CTR (SC) 1 : (2000) 246 ITR 609 (SC) again it is held that in an unequal distribution of assets between the partners there is no transfer in general law and therefore s. 2(xxiv)(d) would not apply. 65. The assessee dug the well and put steel pipes therein to reach the reservoirs of oil and natural gas. It is thus a passage created by the assessee to reach reservoir. The well is to protect, cover and put a structure around the space drilled from which mineral oil or gas is obtained. The cost is of digging and laying steel pipeline and is the expenditure claimed as cost of the plant but the cost of apparatus which is used to extract oil and natural gas is separately booked under the head machinery. This also gives an impression that the gas oil wells are not plant. It is but a setting through which the assessee extracted oil and gases, and therefore a part of the building within the extended meaning of the term building given in the Appendix 1 to IT Rules. The depreciation would be allowed thereon @ 10 per cent as building. 66. In view of the above we need not discuss the alternate claim of the Revenue that even if it were a plant, depreciation @ 25 per....
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....these have been installed and have been put to use for less than 180 days. 70. In the appeal of the assessee (ground No. 4.1) these expenditure along with others were claimed and allowed as deductible under s. 42, but the CIT(A) held them not allowable as the assessee, according to him, did not satisfy the condition laid therein. We have upheld the view of the AO and of the CIT(A) on this issue that the assessee is not entitled to deduction under s. 42 of the Act. On delineation of claim of Rs. 5,41,95,406, the AO allowed the claim but the CIT(A) withdrew it. The assessee submits that the AO allowed 10 per cent in asst. yr. 1998-99, the first year where the dispute was whether the platform is a plant, therefore, that order is to be followed. The CIT(A) allowed depreciation at 10 per cent as if it was building. AO is directed to follow the final view in asst. yr. 1998-99. 71. Ground No. 4.2 in the appeal of the assessee is for allowance of 50 per cent depreciation in respect of well No. 12 which according to the assessee was installed and used on 1st Oct., 2000 and thus the user was for more than 180 days and therefore full depreciation should be allowed and not 50 per cent th....
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....ction of IT Act. 74. The assessee submitted that well No. 12 was installed on 1st Oct., 2000. It was found to be an unproductive well and, therefore, assessee wrote it off. It is contended that (i) it is revenue expenditure because the oil is stock-in-trade; (ii) if oil were found, it would have been a plant and (iii) it was used for determining the availability of oil and, therefore, it was used. The learned CIT-Departmental Representative says it did not come into existence, it was not used and, the deemed/passive user cannot be a ground for allowing deduction. He then referred to the decision of the Karnataka High Court in the case of Dy. CIT vs. Yellamma Dasappa Hospital (2007) 207 CTR (Kar) 523 : (2007) 290 ITR 353 (Kar). The claim is only for depreciation and not for a deduction as revenue expenditure. He also referred to decision of Madras High Court in the ease of B. Nagi Reddy vs. CIT (1993) 199 ITR 451 (Mad) the decision of Allahabad High Court in the case of CIT vs. Bazpur Co-operative Sugar Factory Ltd. (1982) 30 CTR (All) 266 : (1983) 142 ITR 1 (All) regarding tube well not a plant. Reliance is also placed on the decision of Gujarat High Court in the case of Shree D....
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....f Rs. 23,04,579 consisted of expenditure of escape bridge of Rs. 14,93,855 and expenditure on bituman road on causeway of Rs. 8,10,724, both being related to the approach path to the land based drilling platform and accordingly, he allowed depreciation @ 10 per cent as building. He thus rejected the claim of the assessee and he confirmed the action of AO. 78. We have heard the parties and considered the rival submissions. The assessee has reclaimed the seabed and the land based drilling platform has been constructed about 1-1/2 to 2 kms. inside the sea; that on this platform, having area about 2 sq. kms. well Nos. 8 to 15 have been drilled. This platform supports the various wells and that this platform has been prepared by highly specialized technical expertise and therefore, the aforesaid amount included not only amount of expenditure incurred on platform itself but also on the approach road/path developed to reach to the platform and therefore cannot be a plant. Depreciation @ 10 per cent on the expenditure incurred on approach path/road is rightly allowed by the CIT(A). Similarly on the expenditure of Rs. 23,04,579 consisting of Rs. 14,93,855 on escape bridge and Rs. 8,10,72....
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....ed computation of income also. However, the assessee mentioned in its letter dt. 8th Dec., 2003 as under: 'As you are aware, Niko has commenced commercial production on some of the wells after 1st April, 1997. Each well being a separate undertaking, Niko reserves its right to claim deduction in respect of profits derived from such wells under s. 80-IB of the IT Act'." The assessee has further mentioned in its letter dt. 9th Feb., 2004 that without prejudice to the claim under s. 42, the company reserves its right to claim benefit under s. 80-IB(9) for the tax holiday for the Hazira wells. Except this there is no claim for deduction under s. 80-IB(9) of the IT Act. The assessee never specified the number of wells whose commencement was claimed after 1st April, 1997. The assessee also did not specify the amount of income from the eligible wells, if any which was claimed to qualify for deduction under s. 80-IB(9) of the IT Act. The assessee has also not submitted separate P&L a/c and balance sheet of the undertaking in respect of which deduction under s. 80-IB(9) is claimed either along with the return of income or during the course of assessment proceedings. Even in the grou....
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....ound before the CIT(A) but this ground was included in the appeal originally filed before the CIT(A). Thus, it is not a new ground taken by the appellant. In view of the facts and circumstances of the case, it is held that the claim of the appellant under s. 80-IB is required to be decided on its merits and same is, not ab initio rejected." 84. The learned CIT-Departmental Representative pressing the preliminary objection for entertaining the claim for deduction by the CIT(A), submitted that no deduction was claimed in the original return filed; that no claim was made in the revised computation dt. 6th Jan., 2004 also; that assessee claimed that gas of 395.958 SCM produced in well No. 6 in August, 1998 and gas of 53.474 SCM in well No. 7 in September, 1998. These months though fall partly in asst. yr. 1999-2000, however, the assessee has not claimed deduction under s. 80-IB(9) for the asst. yrs. 1999-2000, 2000-01 and 2001-02. It is further submitted that for claim of deduction under s. 80-IB, certain basic conditions under ss. 80-IB(1) and 80-IB(2) are to be fulfilled, namely-(i) that the gross total income of the assessee should include any profit and gains derived from any bu....
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....ry, then also the audit report should be filed before the completion of assessment; and (f) the claim cannot be allowed on reserving or dereserving any right but allowed on fulfilment of conditions laid down in the provisions of the Act as before the AO the assessee made only a plea that it reserves the right to claim exemption under s. 80-IB(9) in respect of the well which began commercial production after 1st April, 1997. 87. The grounds of appeal taken before the CIT(A) is basically wrong and he should have rejected the claim outright which may be done now; that the appeal was filed before the CIT(A) on 6th April, 2004 and no P&L a/c and balance sheet of well Nos. 6 and 7 was filed along with the appeal. Likewise, no audit report in Form No. 10CCB was filed along with the appeal memo and thus, the claim of the CIT(A) was to be rejected without considering the merits of the case; that the CIT(A) has exceeded his powers in deciding the relevant ground. He has decided an issue which was neither before the AO nor before the CIT(A); that the finding of the CIT(A) in deciding ground No. 11 is contrary to the provisions of law and deserves to be rejected; that the CIT(A)'s finding i....
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.... vs. Mahendra Mills observing to the effect that the circular imposes a duty on the officers of the Department to assist the taxpayers in every reasonable way, particularly in the matter of claiming and securing relief. 89. We have heard the parties and considered the rival submissions. The assessee did put a note in the return of income reserving a right for making claim under s. 80-IB as the assessee was hoping to get the claim for deduction under s. 42 the claim was not made and quantified. It was however discussed by AO and he has given a finding on it saying it as not allowable because the production started much before 1st April, 1997. The assessee had also taken a ground for seeking deduction in the memo of appeal filed before the CIT(A). The claim under s. 42 was accepted by the AO but withdrawn by the CIT(A) and therefore, there was a reasonable cause for quantifying the claim under s. 80-IB before the CIT(A) for the first time. Truly speaking it is not a new ground. In any case claim can be raised for the first time before the CIT(A) in view of the decisions of the Supreme Court in Jute Corporation of India Ltd. vs. CIT and National Thermal Power Co. Ltd. as relied upo....
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....atural gas from well Nos. 6 and 7 for the financial years 1998-99 and 2000-01 also. The assessee has contended that the word mineral oil includes petroleum and natural gas as defined in s. 44BB of the IT Act but this definition is relevant only for that section, the word mineral oil has not been defined in s. 80-IB(9) and therefore, it has to be understood in the common parlance. The assessee has also submitted a separate P&L a/c and balance sheet in respect of undertaking H-2 (well Nos. 6 and 7) and has also furnished the P&L a/c of Hazira field by different cost centers and has contended that each undertaking H-1 to H-3 is a separate undertaking and since the undertaking H-2 began commercial production after 1st April, 1997, it is eligible for deduction under s. 80-IB(9). The amount of eligible profit from this undertaking as per the P&L a/c and the computation of income filed as per assessee's letter dt. 9th Nov., 2004 is Rs. 36,652,752. The assessee has also submitted a copy of the order of the CIT(A), Gandhinagar dt. 16th July, 2004 in the case of Gujarat State Petroleum Corporation Ltd, Gandhinagar for asst. yr. 2001-02 who is a co-partner of the assessee in the joint venture....
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....istinct and new undertaking; that the total capital investment in undertaking H2 is to the tune of Rs. 3.44 crores and H3 to the tune of Rs. 30.22 crores as on 31st March, 2001; that each well produced revenue independently; that the undertaking H2 produced marketable quantity of gas and generated revenue on its own; that operation of undertaking H2 was not affected by other wells in the field and thus undertaking H2 is independent from undertaking H3; that the assessee has got separate approval for land wells 6 and 7 from the Director General of Hydrocarbons, who is the Government authority for giving such type of approvals indicating that "land wells 6 and 7" were separate from the other wells and constituted a distinct undertaking; and that the assessee maintained undertaking-wise quantitative production data and furnished the same to the Director General of Hydrocarbons. He thus held that cluster of wells 6 and 7 can be treated as one undertaking named as H2 and cluster of wells from 8 to 15 (later on 8 to 23), which have been drilled on land based drilling platform can be considered as another undertaking namely, H3. He also referred to the case of CIT vs. Associated Cement Co....
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....entitled to deduction under s. 80-IB. 94. To quantify the deduction he noted that the assessee's working of deduction under s. 80-IB amounted to Rs. 3,85,73,368 wherein he found that though the production expenses and the revenue has been taken on the basis of actual sales related to each undertaking, the administrative expenses have been divided on the basis of investment made in each undertaking during the year for which he did not agree. According to him the investment made during the year cannot at all be considered as the basis and the better basis is to allocate the expense in 'the ratio of production/sales of the various undertakings". Accordingly, on that basis the sale ratio of the Hazira field was worked out to 99.34 per cent and accordingly, out of total administrative expenses, the expenses relatable to Hazira comes to Rs. 6,75,36,595, within the Hazira field, the sale of H2 undertaking is 9 per cent and H1 and H3 are respectively 40 per cent and 51 per cent. As only H2 undertaking is eligible for deduction under s. 80-IB, the administrative expenses relatable to H2 undertaking comes to Rs. 60,78,293, being 9 per cent of Rs. 6,75,36,595. Accordingly, the claim of the....
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....ment as well as assessee in January, 2007. These are: (a) That the explored gas from wells in being carried through a common pipeline into a separator plant. There is no separate unit for processing and selling for each well separately; (b) Gas merges in common pipeline for carrying it to the plant for processing and selling. At the time of processing and selling, there are no well-wise or undertaking-wise separations; (c) What comes out of the well is a mix of oil vapours and natural gases and there is no commercial sales of this mix. The mix is passed through a separator wherein natural gas is separated from oil. What is sold is the output of the separator plant and not what comes out from the well; (e) Commercial production is with reference to the delivery point and the sale is effected only when the oil and gas is delivered at the gathering station of ONGC/other buyer. What is delivered at the gathering station is not a mine of natural gases and oil is recovered from the wells but natural gas and oil separated/processed at the separate unit; (f) No separate books for each well/cluster of well or fields are maintained by the appellant. This is not possible because there is no w....
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....hat the assessee complied with the conditions and allowed the deduction but disallowed only on the ground that it was not producing mineral oil. Referring to the various parts of the section he submitted that sub-s. (3) provides deduction for 25 per cent to an industrial undertaking for 10 years; sub-s. (4) provides 100 per cent deduction to an industrial undertaking for five years if the industrial undertaking is in backward area and 25 per cent thereafter for ten years; sub-s. (5) provides for deduction to an industrial undertaking if it is in a notified backward district at 100 per cent for first five years and 25 per cent thereafter; sub-s. (6) provides for deduction to shipping industry; sub-s. (7) to hotel, sub-s. (8) and (8A) to the scientific research company, sub-s. (9) to an industrial undertaking not being infrastructure undertaking, sub-s. (10) to an infrastructure company, sub-s. (1) to a cold chain facility for agricultural produce for operating cold chain facilities for agricultural produce, and sub-s. (11A) to an undertaking which is deriving profit from integrated business handling, storage and transportation of food grains. Sub-s. (2) extends the benefit to a tran....
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....He further submitted that the same business theory will not deprive the claim because an assessee may have many businesses which may be or may not be same business. An undertaking does only one business which is a separate from the assessee. In this connection he relied upon the decision of Karnataka High Court in the case of International Instruments (P) Ltd. vs. CIT (1979) 9 CTR (Kar) 291 : (1980) 123 ITR 11 (Kar), the decision of Calcutta High Court in the case of CIT vs. Rohtas Industries Ltd. (1979) 120 ITR 110 (Cal), the decision of Bombay High Court in the case of Mahindra Sintered Products Ltd. vs. CIT (1989) 75 CTR (Bom) 83 : (1989) 177 ITR 111 (Bom). He also referred to the Board circulars dt. 15th May, 1963 and 13th Dec., 1963, where a deduction is allowed to a transferred company for the remaining period showing that the deduction is for an undertaking and not to the assessee. 101. He then referred to reference of the terms 'mineral oil' and 'natural gas' in production sharing agreement and the definition given under various Acts, like The Oil and Fuel (R&B) Act, 1948, s. 3(c); The Mineral oil Petroleum Rules, 1959, s. 2(k); The Petroleum, Oil Industrial (Development....
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....arate undertakings by themselves. The undertaking H1 consisting of well Nos. 1 to 5 had started production before 1st April, 1997 but undertaking H2 consisting of well Nos. 6 and 7 for which the assessee has claimed deduction has started production in August-September 1998. The term 'undertaking' has to be construed as distinct from the 'assessee'. Unit H2 is a separate undertaking since it is a physically separate unit eligible for tax holiday under s. 80-IB(9) of the Act. It is well established that a person may be owner of several undertakings and all such undertakings may not be set up at the same time. Undertakings may be set up by stage and from time to time. 104. Referring to various provisions of s. 80-IB the learned counsel submitted that sub-s. (9) grants benefit to an "undertaking" and there is no need of it to be an "industrial undertaking" and therefore the requirements for eligibility of deduction by an "industrial undertaking" as contained in sub-s. (2) are not applicable and not to be complied with. 105. According to him the AO is wrong in forming the view that as undertakings H1 and H2 were part of Hazira fields and therefore the whole field should be regarde....
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....to the benefit for unexpired period of five years provided the undertaking is taken over as a running concern, and also the Circular No. 281, dt. 22nd Sept., 1980 stating that "In computing the quantum of 'tax holiday' profits in all cases, taxable income derived from the new industrial units, etc., will be determined as if such unit were an independent unit owned by an assessee who does not have any other source of income." 108. The learned counsel of the assessee also referred to the object for introducing the provision for deduction as originally allowed under s. 80-IA(4E) of the Act before its division in two parts-ss. 80-IA and 80-IB. It is submitted that with the energy requirements of India far exceeding its productive capacity, leading to huge import of oil with consequential damaging affect on the foreign exchange reserves, it was imperative for India to exploit its natural resources to their fullest capability. Therefore the deduction as tax holiday vide s. 80-IB(9) formerly contained in s. 80-IA(4E) of the Act was introduced as part of a two prone strategy to diminish the gap between the demand and supply of energy by liberalizing the foreign investment norms in the o....
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....nation 1: For the purposes of cl. (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely: (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. Explanation 2: Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of cl. (ii) of this sub-section, the condition specified therein shall ....
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....in the North-Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment years. (5) The amount of deduction in the case of an industrial undertaking located in such industrially backward districts as the Central Government may, having regard to the prescribed guidelines, by notification in the Official Gazette, specify in this behalf as industrially backward district of category 'A' or an industrially backward district of category 'B' shall be,- (i) hundred per cent of the profits and gains derived from an industrial undertaking located in a backward district of category 'A' for five assessment years beginning with the initial assessment, year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains of an industrial undertaking: Provided that the total period of deduction shall not exceed ten consecutive assessment years or where the assessee is a co-operative society, twelve consecutive assessment years: Provided further th....
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....ch, 2001: Provided that nothing contained in this clause shall apply to a hotel located at a place within the municipal jurisdiction (whether known as a municipality, municipal corporation, notified area committee or a cantonment board or by any other name) of Calcutta, Chennai, Delhi or Mumbai, which has started or starts functioning on or after the 1st April, 1997 and before the 31st March, 2001: Provided further that the said hotel is approved by the prescribed authority for the purpose of this clause in accordance with the rules made under this Act and where the said hotel is approved by the prescribed authority before the 31st March, 1992, shall be deemed to have been approved by the prescribed authority for the purpose of this section in relation to the assessment year commencing on the 1st April, 1991; (b) thirty per cent of the profits and gains derived from the business of such hotel as is located in any place other than those mentioned in sub-cl. (a) for a period of ten consecutive years beginning from the initial assessment year if such hotel has started or starts functioning at any time during the period beginning on the 1st April, 1991 and ending on the 31st M....
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.... be hundred per cent of the profits for a period of seven consecutive assessment years including the initial assessment year: Provided that where the undertaking is located in North-Eastern Region, it has begun or begins commercial production of mineral oil before the 1st April, 1997 and where it is located in any part of India, it begins commercial production of mineral oil on or after the 1st April, 1997: Provided further that where the undertaking is engaged in refining of mineral oil, it begins refining on or after the 1st Oct., 1998. (10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st March, 2001 by a local authority, shall be hundred per cent of the profits derived in any previous year relevant to any assessment year from such housing project if- (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st Oct., 1998 and completes the same before the 31st March, 2003; (b) the project is on the size of a plot of land which has a minimum area of one acre; and (c) the residential unit has a maximum built-up area of one thousand square fe....
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.... amalgamating or the demerged company if the amalgamation or demerger had not taken place. (13) The provisions contained in sub-s. (5) and sub-ss. (7) to (12) of s. 80-IA shall, so far as may be, apply to the eligible business under this section. (14) For the purposes of this section.- (a) "cold chain facility" means a chain of facilities for storage or transportation of agricultural produce under scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of such produce; (b) "hilly area" means any area located at a height of one thousand meters or more above the sea level; (c) "initial assessment year"- (i) in the case of an industrial undertaking or cold storage plant or ship or hotel, means the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the cold chain facility or the ship is first brought into use or the business of the hotel starts functioning; (ii) in the case of a company carrying on scientific and industrial research and development, means the assessment year re....
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....rofits and gains derived from eligible business referred to in sub-ss. (3) to (11) and (11A). The deduction is to be in accordance with and subject to the provisions of this section. 111. Sub-s. (2) provides that this section applies to any industrial undertaking which fulfils all the following conditions, namely;-(a) it is not formed by splitting up, or the reconstruction, of a business already in existence (except in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in s. 33B, in the circumstances and within the period specified in that section); (b) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation 1 however relaxes this condition of this cl. (ii), if any machinery or plant which was used outside India by any person other than the assessee is not to be regarded as machinery or plant previously used for any purpose, if (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or p....
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....ce articles or things or to operate its cold storage plant (not specified in sub-s. (4) or sub-s. (5) at any time during the period beginning on the 1st April, 1995 and ending on the 31st March, 2002. 113. Sub-s. (4) provides 100 per cent deduction of the profits and gains derived from an industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule, provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfilment of the condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during the period beginning on the 1st April, 1993 and ending on the 31st March, 2002, but if such industries in the notified North-Eastern Region, the amount of deduction shall be hundred per cent of profits and gains for a p....
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....ial assessment year if it is located in a hilly area or a rural area or a place of pilgrimage or a notified other place and it starts functioning at any time during the period from 1st April, 1990 to 31st March, 1994 or from 1st April, 1997 to 31st March, 2001, provided it is not located within the municipal jurisdiction of Calcutta, Chennai, Delhi or Mumbai started or starts functioning on or from 1st April, 1997 to 31st March, 2001. The deduction is thirty per cent for other hotel if started or starts functioning from 1st April, 1991 to 31st March, 1995 or 1st April, 1997 to 31st March, 2001 if it is not located within the municipal jurisdiction of Calcutta, Chennai, Delhi or Mumbai, and it started or starts functioning from 1st April, 1997 to 31st March, 2001 this deduction is available only if (i) the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose; or (ii) the business of the hotel is owned and carried on by a company registered in India with a paid-up capital of not less th....
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.... hundred square feet at any other place. 121. Sub-s. (11) provides for 100 per cent deduction to an industrial undertaking deriving profit from the business of setting up and operating a cold chain facility for agricultural produce, irrespective cl. (iii) of sub-s. (2) and sub-ss. (3), (4) and (5), for five assessment years and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) not exceeding ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) and subject to fulfilment of the condition that it begins to operate such facility on or after the 1st April, 1999 but before the 31st March, 2003. 122. Sub-s. (11A) grants 100 per cent deduction to an undertaking deriving profit from the integrated business of handling, storage and transportation of foodgrains, for five assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) not exceeding ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such business on or after the 1st April, 2001. 123. S....
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....gement committee for approval on the basis of the approved development plan, the assessee then undertakes various steps for development of wells and support production facilities; (iii) Development of wells/setting up of undertakings on the basis of approved development plan, the assessee initiates the process of making investments for discovery of gas and on developing the undertakings. In drilling operations-commercial production land based wells, on the basis of development plans approved by Director General of Hydrocarbons, the assessee drilled either one well or multiple wells for exploiting the field. The decision to drill a well or multiple wells being dependent on the methodology agreed upon by the assessee and the managing committee, for exploiting the contract area. Based on additional facts known after drilling, the assessee decided the methodology with MCM, for commercially exploiting the field. 127. Initially on the basis of data available, one well started commercial production in July, 1995 and later on drilling of land well Nos. 3 to 5 was undertaken. Subsequent to this, based on further information, the need for drilling additional well Nos. 6 and 7 was establis....
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....ased drilling operations clearly demonstrates the independence and viability of each drilling operation as a separate independent undertaking capable of earning revenue and has independent working from other wells. The actual development of the onshore field clearly depicts that land wells have been drilled at intervals, as per the requirements of exploration and each well served the purpose of exploiting the reservoir. The operations of undertaking H2 are not affected by the other wells in the field. The assessee has separate approvals from the Director General of Hydrocarbons for land well Nos. 6 and 7 which indicates that well Nos. 6 and 7 are separate from the other wells and constitute a distinct undertaking. The assessee is required to maintain undertaking-wise quantitative production data and furnish the same to the DGH. The assessee prepares separate records for each undertaking. For the financial year relevant to the subject asst. yr. 2001-02 the assessee prepared separate P&L a/c for undertaking H2. 130. With the commissioning of undertaking H-2 in financial year 1998-99, the total gas production went up from 89,068,959 SCM (gross) to 109,198,817 SCM (gross), for the p....
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....ium ingots from ore and it had four manufacturing centers at Belur, Kalwa, Alupuram and Hirakud. The assessee made an extension to the existing centers at Belur and Alupuram and installed new plant and machinery there. The production of aluminium ingots went up by double. The additional units set-up cost was over Rs. 50 lacs at Belur and about the same amount at Alupuram. It was held that in view of the nature of the investments that the units were new industrial undertakings by themselves, that these units were set up side by side with the old ones and added to the assessee's total output and therefore, the assessee was entitled to relief under s. 15C of IT Act, 1922. Sec. 15C of the old Act was replaced by s. 80J of the new IT Act, 1961 and the language of s. 80-IB is more or less is same as that of s. 80J at least in relation to industrial undertaking or undertaking. (c) CIT vs. Premier Cotton Mills Ltd.: The Court held that "an undertaking is not to be equated with the legal entity that owns the undertaking. A single legal entity may own and operate more than one undertaking and the fact of common ownership does not render undertakings, which are otherwise capable of being s....
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.... and the quarterly report for the last quarter viz. January to March, 2001 clearly indicate the well-wise production for each field. In fact the monthly report provides the details of field-wise production and the daily production of natural gas from each well and the quarterly report provides the details of cumulative production of each well from the inception of commercial production till the period covered by the report. The figures of month-wise production match the figures furnished in the report for the quarter. This shows that the production at each oil and gas well is distinctly identifiable and in fact has been ascertained and full details thereof are filed with the DGH and accepted by the DGH. 134. The natural gas is sold as and when it is produced and consequently there is no inventory of gas at any point of time. The figure of sales of Rs. 5,42,66,784 on the basis of which the profit derived from H-2 undertaking are determined, is worked out on the basis of the production of gas of the undertaking multiplied by the average sales realization of gas from the Hazira field, which in turn is determined by dividing the total sales value realized from the Hazira field for t....
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....vernment of India and the successful bidding party, there has to be invariably a clause dealing with the tax payable by the bidding company on its profits and gains from the business of petroleum operations. As specific methodology is provided to compute in the profits and gains from such business, the IT Act as well as PSC have specific overriding provisions to compute the profit and gains of business, which included deductions under s. 42, computation of profit and gain under s. 44BB and under s. 293A of the IT Act, 1961, as well as deductions under ss. 80-IA/80-IB of the said Act. PSC is binding to all the parties entering into the contract including the Government of India. (d) In 1999, the Petroleum Tax Guide was published by the Ministry of Petroleum and Natural Gas, Government of India to communicate to the prospective bidders for oil fields under new exploration and licensing policy. Clause 5(11) of the Guide states that under s. 80-IA of the IT Act, 1961, PSC participants who begin commercial production of petroleum in any part of India on or after 1st April, 1997 shall be entitled to claim deduction of 100 per cent of their profits and gains derived from such business ....
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....630, "natural gas" is defined as a naturally occurring mixture of hydrocarbon and non-hydrocarbon gases found in the porous geologic formations beneath the earth's surface, often in association with petroleum. 21. To obtain a marketable product, the raw natural gas flowing from gas or oil wells must be processed to remove water vapour, inert or poisonous constituents and condensable hydrocarbons. The processed gas is principally methane, with small amounts of ethane, propane, butane, pentane, carbon dioxide and nitrogen. This gas can easily be transported from the producing areas to the market in underground pipelines under pressure or liquefied at low temperatures and transported in specially designed ocean-going tankers. 2. Natural gas is found in areas of the earth that are covered with sedimentary rocks. These sediments were first laid down during the Cambrian period, ca 500 million years ago, and this process continued until the end of the Tertiary period ca 100 million years ago. These sediments contain the organic source materials from which natural gas and petroleum were produced. Gas and petroleum, being less dense than the water present in the rocks, tended to migra....
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....ic compounds containing oxygen, nitrogen or sulphur. 29. According to a widely held theory, the remains of countless small marine animals and plants dropped to the ocean bottom and were covered over by mud. Many layers of mud and plant and animal remains accumulated in the course of time. These sediments were subjected to great pressure and heat and were often squeezed and distorted as the earth's crust moved. Gradually they were converted into layers of sedimentary rock. The plant and animal remains contained within them were transformed into petroleum and natural gas. The details of this transformation are not quite clear. 30. Gas and oil are found in huge subterranean caverns. They both occur in minute pores of such rocks as sandstone and limestone. They are held captive under great pressure by surrounding rock formations that are impervious to see-page. Finally, they are released when the shifting of the earth's surface cracks the cap rock. 31. "Natural gas" has been defined in the Webster's New 20th Century Dictionary, unabridged 2nd Edn., as follows: 'Natural gas: A mixture of gaseous hydrocarbons, chiefly methane, occurring naturally in the earth in certain place....
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...."Petroleum" means a naturally occurring substance consisting of a hydrocarbon or mixture of hydrocarbons in gaseous, liquid or solid state but does not include coal or shale unless occurring in circumstances in which the use of techniques for coal seam methane production or in situ gasification would be appropriate." Liquid Fuel Emergency Act, 1984 (s. 3) "petroleum" means: (a) any naturally occurring hydrocarbon or mixture of hydrocarbons, whether in a gaseous, liquid or solid state; or (b) any naturally occurring mixture of a hydrocarbon or hydrocarbons and of another substance or other substances, whether in a gaseous, liquid or solid state. 40. The various legislations passed by the Indian Parliament and the relevant rules also would show that "natural gas" was treated as mineral oil resource or petroleum product. 1. The Oilfields (Regulation and Development) Act, 1948 "3. (c) 'mineral oils' include natural gas and petroleum;" 2. Mines Act, 1952 "2. (ii) 'minerals' means all substances which can be obtained from the earth by mining, digging, drilling, dredging, hydraulicking, quarrying or by any other operation and includes mineral oils (which in turn in....
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....rom oil wells predominantly comprises of methane. Production of natural gas is not independent of the production of other petroleum products; though from some wells natural gas alone would emanate, other products may emanate from subterranean chambers of earth. But all oilfields are explored for their potential hydrocarbon. Therefore, the regulation of oilfields and mineral oil resources necessarily encompasses the regulation as well as development of natural gas. For free and smooth flow of trade, commerce and industry throughout the length and breadth of the country, natural gas and other petroleum products playa vital role. 42. In Cauvery Water Disputes Tribunal, the right to flowing water of rivers was described as a right "publici juris" i.e. a right of the public. So also the people of the entire country have a stake in natural gas and its benefit has to be shared by the whole country. There should be just and reasonable use of natural gas for national development. If one State alone is allowed to extract and use natural gas, then other States will be deprived of its equitable share. This position goes on to fortify the stand adopted by the Union and will be a pointer to t....
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....ital expenses as revenue and deduction of profits on exploration and production of oil and gas by way of ss. 80-IA/80-IB. 139. Rules of interpretation: One very important rule of interpretation is that "where the draftsman uses the same word or phrase in similar contexts, he must have presumed to intend it in each place to bear the same meaning"-Farrell vs. Alexander (1976) 2 All ER 721, 736 (HL); Central Bank of India vs. Ravindra AIR 2001 SC 3095, 3114; that words are generally used in the same sense throughout in a statute, unless there is something repugnant in the context-Justice Wanchoo in Boghilal Chunnilal vs. State of Bombay AIR 1959 SC 356; that the principles of harmonious construction also states that same meaning should be attributed to the same word used in the same statute unless it leads to absurd result; that "when the legislature uses same word in different parts of the same section or statute, there is a presumption that the word is used in the same sense throughout-G.P. Singh in his book Principles of Statutory Interpretation. 140. The context of the word 'mineral oil' in all the sections namely ss. 42, 44BB, 293A and 80-IA(4E)/80-IB(9) is the same though ....
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....um and natural gas. Sec. 3(h) of The Oil Industry (Development) Act, 1974 defines "mineral oils" to includes petroleum and natural gas. Under the Mines Act, 1952, "minerals" means oil substances which can be obtained from the earth by mining, digging, drilling dredging, hydrolyzing, quarrying, or by any other operation and includes mineral oils. The opinion of the Attorney General of India in the case of Dy. CIT vs. Schlumberger Seaco Inc. (1995) 51 TTJ (Cal) 72 : (1994) 50 ITD 348 (Cal) as quoted in the aforesaid judgment states that petroleum and natural gas are mineral oils and therefore, they are minerals and mines and consequently would fall within the expression "mining" as contemplated by Expln. 2 to s. 9(1)(vii). Explanation to s. 44BB defines mineral oil as including petroleum and natural gas." Regulations for foreign direct investment in India also include natural gas within the category - Petroleum (other than refining). Therefore it emerges from the definitions under the Act and other statutes that natural gas and petroleum are so intertwined that it is not conceivable that mineral oil would exclude natural gas. 143. In view of the above we hold that the assessee is ....
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....uction well wise, in this case H2 cluster of two wells 6 and 7. There are no intermixing of employees. H2 undertaking has employees of their own and they exceeded 20 employees. The stock is not left at any stage as the entire stock is sold the moment gas is separated, therefore separate stock inventory question would not arise. It is also not a requirement to maintain separate excise/sales-tax records. As aforesaid the CIT(A) has considered the above things while in the appeal of asst. yr. 2003-04 and accepting the wells as separate undertaking. 145. The contention that the CIT(A) has ignored the provisions of s. 80-IB(13) and the definition of industrial undertaking as given in Explanation of s. 33B, namely 'industrial undertaking' means any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining". The CIT(A) has discussed this point also in that appeal for asst. yr. 2003-04 and that assessee is an industrial undertaking. Be that as it may, the said Explanation is not required to be complied with as s. 80-IB(9) applies to ....
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....fits of the same should be given the relief under s. 80J up to the limits prescribed in sub-s. (2) of that section. The Tribunal upheld the view of AO. The High Court observed that the principal grounds on which the relief was denied by the Tribunal were: (i) that all the new undertakings in respect of which relief was claimed, had come into existence as a result of a single collaboration agreement; (ii) that the manner of functioning by the assessee and its method of accounting showed that there were no independent units at all because no separate accounts had been kept for each unit; (iii) that there were no inter-Departmental sales noted and the cost of production in each stage had not been separately ascertained ; and (iv) that, in similar circumstances, the High Court of Calcutta had denied relief in CIT vs. Textile Machinery Corporation (1971) 80 ITR 428 (Cal). The Court however noted that the Tribunal did not hold that each of the seven units referred to above had not been established in the respective years as claimed by the assessee and that some articles were being manufactured there. It also did not disbelieve the case of the assessee that formerly it was securing from a....
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....unal has specifically found the amount of fresh capital employed for the setting up of these particular units. The Tribunal has also categorically found that the new industrial units are physically separate from the old units, they are using a separate building and they are fed with power from a new power house. No one challenged that they cannot exist on their own and function independently. At no earlier stage in the proceedings it was challenged by the Revenue that the productions which were the results of these new undertakings were being used by the assessee in its old undertaking. But even if the products are being so used, it would really make little difference to the position because such products have been found by the Tribunal to be distinct marketable products though used for the purpose of feeding the old business. So far as electricity is concerned, it appears from the order of the AAC for the asst. yr. 1955-56 that the assessee was supplying electricity to the Government of Bihar under an agreement whereunder the Government of Bihar was claiming rebate on the electricity charges. The assessee's claim for deduction of this rebate granted was disallowed by the ITO. This....
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....by establishing a new plant and machinery by investing substantial funds may produce some commodities of the old business or it may produce some other distinct marketable products or even commodities which may feed the old business. These products may be reconsumed by the assessee in his old business or may be sold in the open market. Such an undertaking cannot be said to have been formed by the reconstruction of the old business and denied the benefit of s. 15C which corresponds to s. 80J of the new Act merely because it goes to expand the existing business of the assessee in some directions. Two reasons given by the Addl. CIT and upheld by the Tribunal in this case for holding that the new unit started by the assessee is not an industrial unit within the meaning of s. 80J are (1) that the new unit was manufacturing copper powder which it was earlier importing from abroad and which powder it was using in its own factory for manufacture of its old products, and (2) no separate accounts were maintained in respect of this activity. As regards the first objection, we have already stated that the Supreme Court had reversed the Calcutta High Court's decision on the basis of which the ne....
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....has not furnished the specific details of these expenses claimed to be business promotion expenses. 152. We have heard the parties and considered the rival submissions. It is true that the AO has erroneously held the expense as "donation" but it is also not actually in the nature of business promotion expenses incurred on grounds of commercial expediency. Out of a total expenditure of Rs. 1,28,110 the assessee had paid Rs. 50,000 to the Canadian Embassy on the occasion of "Canada Day" and the balance amount of Rs. 78,110 was spent towards business promotion expenses for organizing lunch/dinner meetings with business associates and contacts on several occasions. It is true that the assessee, being a Canadian company, needs to interact regularly with the Canadian Embassy in India, which is a representative of the Canadian Government and that the assessee has to seek the help of the trade promotion wing of the Canadian Embassy on a regular basis to interact with Indian businesses but the function organized by the Canadian Embassy cannot be held to provide a platform to explore business interests of the assessee. Reliance placed by assessee on the following observations of the Bomba....
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....n by the assessee and perused the assessment order. It is noticed that the expenditure of Rs. 7,14,778 has been incurred on providing guest house accommodation at Baroda and Surat, as mentioned by the assessee. It is also undisputed fact that no records have been maintained as to who have availed of the guest house facility apart from the general manager of the company. The assessee also contended that by Finance Act, 1997, the artificial ceiling for the business expenditure by way of specific disallowance has been removed and accordingly, no disallowance be made. I have considered this argument. Prior to asst. yr. 1997-98, the Act itself has specific sub-section under s. 37, wherein, the ceiling on the expenditure was provided. That ceiling was operative even if the assessee proves that the expenditure was incurred for wholly and exclusively for business purpose. It is only this specific ceiling which has been removed. Accordingly, the basic ingredient that for allowing deduction of the expenditure, same should be wholly and exclusively incurred for the business purpose is unaltered. In view of these facts, the contention of the assessee is not accepted. As, undisputedly, complete....
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....g that it is the rate governed on the date of assessment which governed the chargeability and the decision of the Tribunal, Pune, Third Member Bench, in the case of ITO vs. B.A. Patravali & Sons (1995) 53 TTJ (Pune)(TM) 615 : (1995) 54 ITD 1 (Pune)(TM). 158. We have heard the parties and considered the rival submissions. In Addl. CIT vs. Madura South India Corporation (P) Ltd. the rate of granting interest was held to be as applicable on the date of assessment. It observed. "The liability to pay interest on the part of the Government and correspondingly the right of the assessee to receive interest arises only when the assessment is completed. So long as the assessment has not been completed." it will not be possible to find out whether the advance tax paid by the assessee is in excess of the ultimate tax payable by him or falls short of that tax. This position as to whether the advance tax paid exceeds the tax liability or is short of the tax liability can be ascertained only when the assessment is completed. Consequently, the provisions of s. 214 as in force on the date when the assessment is completed will be the only provision that will be applicable with regard to payment o....
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....23B, or if no such assessment has been made, to the date of the assessment (hereinafter called the 'regular assessment') made under s. 23 of the income, profits and gains of the previous year for an assessment for the year next following the year in which the amount was payable." Consequently, if the intention of the legislature was to pay interest at 6 per cent for the period anterior to 1st Oct., 1967, and to pay interest at 9 per cent only for the period on or after 1st Oct., 1967, it would have made specific provision in this behalf. An argument which appears to have been advanced before the Tribunal is that if it is held that s. 214 of the Act as amended w.e.f. 1st Oct., 1967, is to be applied to the period anterior to 1st Oct., 1967, it would give retrospective effect to the amendment, and the Tribunal rejected such a contention. We are of the opinion that the Tribunal was right. Simply because the period with reference to which the interest payable is a period anterior to the date of coming into force of the amendment, it cannot be held that the provision as such will have retrospective effect. 159. Similarly in Hindustan Tile Works vs. Dy. CIT (1995) 54 ITD 1 (Coch) t....
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.... cannot be said that any amount of tax is outstanding. Such a situation does not bring s. 2(m)(iii)(a) into operation at all, as is clear indeed from its very terms. If upon the ultimate determination it is found that the amount of tax is nil, the assessee is denied the deduction claimed by him not on the ground of s. 2(m)(iii)(a) but because the superior authority has found that there is no tax liability whatever. It must be taken that in law there never was any tax liability. So far as the remaining tax liabilities are concerned, the Tribunal is right in allowing the income-tax, wealth-tax and gift-tax liabilities to be deducted in computing the net wealth of the assessee for the respective assessment years, even though the assessment orders were finalised after the respective valuation dates: We may point out that it has not been shown to us that the assessee filed appeals questioning the income-tax, wealth-tax and gift-tax liabilities other than the income-tax liability of Rs. 72,399 and the gift-tax liability of Rs. 1,13,650 for the asst. yr. 1965-66 referred to earlier." (b) CWT vs. Vadilal Lallubhai, Etc. (1983) 37 CTR (SC) 277 : (1984) 145 ITR 7 (SC) again observes "I....
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....he tax liability. There may be cases where the assessment finally made may be reopened in accordance with the procedure and subject to the conditions stated in the relevant statute. There may also be cases where a rectification of apparent errors is effected pursuant to jurisdiction granted by the relevant statute. Both these proceedings are similarly intended for the true quantification of the tax liability. When, in the course of a wealth-tax assessment, the assessee makes a claim to deduction on account of income-tax, wealth-tax and gift-tax liabilities subsisting as debts owed by him on the valuation date, it is the final quantification of the particular tax liability which must be taken into account. Where the wealth-tax assessment so made is carried in appeal, we have no doubt that the appellate authority will take into account the ultimate quantification of the tax liability, even though such ultimate quantification has been reached after the relevant valuation date and during the pendency of the wealth-tax appeal. Upon the aforesaid considerations, we are of opinion that the High Court has acted rightly in holding that in computing the net wealth of the assessee the dedu....
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....is well settled that when an appeal is filed against an assessment order before the AAC, the assessment case is thrown open and the appellate proceeding constitutes a continuation of the assessment proceeding. Even if the tax liabilities, of which a deduction was claimed, were created by rectification orders or by assessment orders made after the date of the wealth-tax assessment order under appeal the law requires the claim to deduction being considered on the same basis as if it had been made in the original wealth-tax assessment proceeding. It is true that the rectification orders and the gift-tax assessments related to tax liabilities which were not claimed by the assessee in the course of the original assessment proceeding before the WTO, but, as the AAC permitted the claim to be made during the hearing of the appeal, we see no reason why the assessee should be denied a consideration of his claim. And, as regards the quantification of the other income-tax and wealth-tax liabilities effected after the WTO had completed the original wealth-tax assessment proceeding, the quantification of the liabilities related to a claim which had already been raised before the WTO in the cours....